A Review of the Nigerian Energy Industry

Afren’s insolvency: Bondholders could recover 6% of their principal —Rencap

23 August 2015, Lagos – Renaissance Capital, Rencap has disclosed that Afren Plc has been placed in administration, predicting that bondholders could recover 6 per cent of their principal if the company ceases to exist.


According to Rencap Research “We see little likelihood that Afren can continue as a going concern. We therefore terminate coverage of Afren (previously Sell, TP GBP0.00), and our previous rating, TP and estimates can no longer be relied upon.

On this note, we look at the implications for its other stakeholders and industry players and review asset valuations for Afren using a $50/bl oil price as our base case. We conclude that bondholders could recover up to 6 per cent of their principal, assuming local partners remain supportive and other non-bank creditors receive nothing.”

Limited upside potential for bondholders

Continuing, Rencap said “We see the chances for bondholders to recover any significant value as quite low, and mainly associated with a sharp turnaround in oil prices, a failure of banks to recover their own loans and a supportive stance on the part of partners in key assets. We think all these conditions look unlikely to hold true (at least in the short term, as far as oil prices are concerned), so our main conclusion is that bonds are too risky, regardless of the price. Our base case is 6 per cent recovery for the bondholders (at $50/bl oil prices), although we see downside risks owing to possible headwinds from local partners. We expect the highest recovery of credit for OML26 (100%), while Ebok creditors could be left with little or nothing, as they rank second in terms of lien, after the bridge note holders.”

Lekoil and Seplat chance to expand their portfolios

On Lekoil and Seplat chance to expand their portfolios, Rencap said “We see an opportunity for Lekoil (BUY, TP GBP0.50, CP GBP0.21) to increase its ownership in OPL310 (in which Lekoil holds a 30% stake), together with the other local partner and operator, Optimum Petroleum Development (not covered), on attractive terms. We think Seplat’s (BUY, TP GBP2.65, CP GBP0.90) appetite for new deals is not as strong as even nine months ago, when it was in active negotiations with Afren.

“However, if Afren’s restructuring continues for many months, and Seplat makes progress with National Petroleum Development Company (NPDC) receivables and resolves the legal disputes around OML53 and OML55, we can see it taking part in some of the potential deals on Afren’s portfolio, possibly with another partner,” Rencap noted.

Assuming any acquisitions were achieved at a reasonable price, we would view Seplat’s expansion of its portfolio as a positive development.”


– This Day

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